Tax measure might paint only partial picture

A trader at the CME Group signals in the S&P 500 Futures pit in Chicago. The owner of the Chicago Board of Trade, CME Group was one of several corporations that threatened to leave the state without tax breaks.

By DAVID MERCER, The Associated Press

CHAMPAIGN – Top Democratic lawmakers opened the fall legislative session in Springfield by proposing that publicly traded companies disclose what they pay – or don’t pay – in state taxes, but their proposed attempt to improve the state’s tax policies may not paint as complete a picture as they’d like.

Taxpayer advocates in Wisconsin, which has its own tax-disclosure law, say corporations are generally structured in ways too complicated and too widely scattered to force them to produce a simple, accurate bottom-line figure on the revenue they generate in any given state. Skeptical economists in Illinois agree.

Senate President John Cullerton and House Majority Leader Barbara Flynn Currie introduced the disclosure legislation as a way to examine how much corporations are paying and gauge the effect of tax breaks that have generated heavy criticism of state government in recent years. The measure passed in the Senate last week, despite warnings by business leaders that the measure was intrusive and could make Illinois less competitive.

Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance, said the information is likely to provide the public with, at best, an incomplete portrait.

“Based on Wisconsin’s experience with a different law but in the same general vein,” Berry said, “I would say that the value of this is somewhat limited and the resulting information is probably somewhat suspect just because of the reality and dynamics of a business organization.”

Rikeesha Phelon, a spokeswoman for Cullerton, acknowledged that seeking bottom-line information may be easier said than done, but that the state needs more transparency.

“To the extent a corporation wants to take extreme measures to hide revenue, that’s something we have to take into account,” she said. “My gut reaction is it seems that (skeptics are) saying having no disclosure is better than having some.”

Corporate taxes and tax breaks have been front-page news in Illinois as state officials try to address a multibillion-dollar budget deficit, strengthen the state economy and keep jobs that other states are trying to lure away.

An income tax increase approved by the Legislature last year led Peoria-based Caterpillar Inc. to warn Gov. Pat Quinn that it was deeply concerned about the state’s financial situation. That was followed by threats from several companies to move if they didn’t get tax breaks, and the state eventually provided them to both Sears Holdings Corp. and CME Group, the owner of the Chicago Board of Trade.

Currently, the corporate tax liabilities of publicly traded companies aren’t made public by the state Department of Revenue. The agency says about two-thirds of the publicly traded companies that do business in the state pay no corporate taxes.

Sears is a rare company that does disclose a figure, saying it paid $207 million in all state taxes in 2011. But the company doesn’t say how much of that is corporate taxes.

In all, corporate taxes generated $2.3 billion in Illinois in last year, according to the Department of Revenue. That’s about 7 percent of the $32.7 billion in total state tax revenue.

Details about tax liability are almost always considered private information, but in Wisconsin, tax information is considered public. However, there are key differences between Wisconsin’s law and the Illinois Democrats’ proposal.

In Wisconsin, tax information is available by request for individuals and companies, whether publicly traded or privately owned – much like an open-records request.

The Illinois plan would require publicly traded companies to post tax information online every year, including their net income, tax liability before any tax credits and what the company finally pays. The bill, which the House is expected to consider in January, allows for a two-year lag its sponsors say would free companies from having to post information that would benefit their competitors.

But Berry points out that many corporations consist of a number of separate subsidiaries, many paying their own taxes. And many companies legally conduct at least a portion of their business in states that have no corporate tax, such as Delaware, by incorporating there rather than in the states where they’re actually based.

“Corporate structure makes this a lot more problematic than it may seem at first,” Berry said.

Judging the effectiveness of Illinois’ corporate subsidies is a nice idea, University of Illinois economist Fred Giertz added, “but this isn’t going to allow them (to do that).”

“It’s really difficult for a state to figure out what’s going on with a corporation,” said Giertz who, like many economists, is critical of tax breaks in general.

In the end the Illinois plan, like the law in Wisconsin, probably wouldn’t accomplish much, Berry argued.

“I guess it makes everybody feel better politically. I think the reason people want the law is not (simply) to have the information, but to have the information to make the argument that somebody should be paying more tax.”

Cullerton and Currie said last week that they need the law to help make decisions about tax policy.

They portrayed their aims as politically neutral, but Phelon acknowledged that some of the bill’s supporters, such as community activists who gathered with Cullerton and Currie, would clearly like to see higher corporate taxes in Illinois. “I think you’re going to hear strains of that throughout the conversation,” she said.

But Cullerton, she said, “does not have in mind a predetermined end here that there’s going to be higher taxes for corporations.”

The bill certainly will do nothing to help Illinois’ image among business executives who worry that publicizing previously confidential information could make them less competitive, Giertz said.

“Illinois is not noted for its friendliness to business,” he said, “and this will look like another sort of impediment.”